Why India's PM Singh pledging sharper attack on corruption

Indian Prime Minister Manmohan Singh has been under political pressure to address corruption more directly. New data indicate that corruption concerns are affecting both foreign and domestic investment decisions.

India’s Prime Minster Manmohan Singh pledged to crack down on corruption even as new data indicates that the problem is dragging on Indian investor confidence.

“I wish to assure the country as a whole that our government is dead serious in bringing to book all the wrongdoers, regardless of the positions they may occupy,” said Mr. Singh in a news conference Wednesday.

Singh faced a media that has been fixated for months on a raft of corruption scandals, ranging from a questionable telecom spectrum fire sale to the fudging of construction safety tests in the runup to the hosting of the Commonwealth Games last summer, an international sporting event.

Corruption scandals, which have also shot to the top of voter concerns, have emboldened the opposition and stymied the Parliament’s winter session, putting pressure on Singh to address the problem more directly.

But the pressure isn’t just political. The business community has also weighed in, with some titans of industry writing an open letter in January to Singh, himself an economist, calling for a “war” on corruption. Their concerns about corruption’s impact on India’s rapid growth are bolstered by recent data.

Investment analysts in January found evidence that corruption concerns were a factor in declining foreign investment in India. Now, a survey released Monday finds that domestic investors in India cite corruption as a top problem clouding the investment climate.

The quarterly survey by J.P. Morgan Asset Management and ValueNotes, an Indian equity research firm in Pune, polled three classes of investors across eight cities in December. Overall, investor confidence is up slightly because fears about the global economy are easing. But among the investors’ worries, corruption has suddenly emerged into the top-tier of concerns.

Corruption and inflation were each cited by 19 percent of retail (individual) investors as the “most negative” economic indicators, with other issues trailing. Among financial advisers, corruption ranked third, at 16 percent, topped by inflation and global economic instability. Most corporate investors, meanwhile, picked inflation, but 8 percent cited corruption as the biggest issue.

Offering his personal views via e-mail, ValueNotes project manager Arjun Bhuwalka says that “although the Investment Confidence Index improved marginally in December 2010 reflecting moderate optimism among the Indian financial community, surprisingly the outlook on the Indian economy has sobered. Corruption may not be the key factor but it is a growing concern [and] if not corrected [it] can have a far reaching impact on domestic and international confidence towards investing in India.”

In the previous three quarters, corruption did not show up in the top three concerns in the quarterly survey.

“Worries over the global economy recede, while domestic worries re-surface; corruption joins inflation in killing confidence in India,” the report summarizes. Mr. Bhuwalka cautions that the survey does not correlate investor decisions and corruption, but just flags it as a rising concern among investors.

In his press conference, the prime minister both praised and chastised the media for their dogged focus on corruption, suggesting that too much coverage may be distorting India’s image.

For many years, Singh enjoyed an almost George Washington-like reputation for personal integrity. While the scandals have so far not involved him personally, his sluggish handling of his underlings’ misdeeds have tarnished his image.

In a sign of how far he’s fallen, a reporter asked him directly if he ever considered resigning.

“I have a job to do,” Singh said. “I have never thought in terms of giving up.”

Beyond the corruption headlines, India signed a free trade agreement with Japan. The two countries promised to remove tariffs on 94 percent of bilateral trade within a decade.

Leaders from the US, China, Britain, and France, among others, have also come to New Delhi in the past couple of years looking for trade deals, signaling the importance of the country’s vast middle class and nearly double-digit GDP growth.